Why SaaS Makes Sense in Our Current Economy

2013-01-30

A look at the economy over the past four years doesn’t yield a very pretty picture. The 2008-2012 global recession, sometimes referred to as the late-2000s recession, Great Recession, the Lesser Depression, or the Long Recession, is a marked global economic decline that began in December 2007 and took a particularly sharp downturn in September 2008. This recession affected the entire world economy, with higher detriment occurring in some countries more than others. As a major global recession characterized by various systemic imbalances, it was sparked by the outbreak of the 2007-2009 global financial crisis. The economic side effects of the European sovereign debt crisis, accompanied with slowing U.S.and Chinese growth, continues to provide obstacles to world economic growth.

As national economies struggle to right themselves in these times, Software as a Service (SaaS) continues to gain momentum as a software delivery model for organizations adding new technologies to their competitive arsenal. In a white paper issued in the wake of the 2008 financial meltdown, service provider Intermedia noted that SaaS makes sense in a slow economy for three primary reasons: financing, flexibility, and staffing.

In terms of financing, the ability of SaaS to minimize the impact of IT investment on day-to-day cashflow, as well as to drive down upfront costs, makes it an attractive option in difficult economic times. Additionally, SaaS helps reduce risk—a key consideration when times are tight—by eliminating the need for long-term financial commitments.

Markets in slow or volatile economies tend to be uncertain, which heightens the need for flexible IT solutions to accommodate growth or respond to downturns. SaaS is designed to be flexible, allowing users to scale software usage up or down, depending on the contingencies of the business. Such flexibility speeds time to return on investment, particularly important in a challenging economic environment. Finally, the paper notes, moving to a SaaS model allows companies to do more with less staff, allowing tight control of headcount without affecting customer experience.

Four years later, a 2012 report by global business consultant Deloitte underscores these points in a survey that shows a stronger consensus among midmarket executives on economic growth, hiring, and other emerging trends. The consultant dubs this attitude “the new realism.” One particular trend is growth in technology, specifically investing in SaaS and the cloud. Comparing this March survey with one taken about six months earlier, the report notes:

Interestingly, there seems to be a greater recognition of the benefits of cloud computing. In our September 2011 survey, it was recognized as a distant fourth as a means to increase productivity. In this survey, it nearly equaled data analytics and business intelligence in terms of likely investments.

In fact, cloud computing/SaaS was the only one of the six categories surveyed (automation of business processes, data analytics/business intelligence, CRM, cloud computing/SaaS, enterprise application suites, and robotics) that showed growth from 2011 to 2012, rising by nearly 38 percent. This continuing growth of and interest in SaaS and other cloud services reflects the growing maturation of the Internet, as the principle difference between traditional software and software as a service is the latter’s delivery over the net.

As Joel York noted in his “Chaotic Flow” blog, the basic SaaS economic value over traditional software comes in two Internet-enabled flavors: one, its lower cost structure from economies of scale (aggregated via the Internet), which is passed on to customers via low subscription costs and lower TCO; and two, reengineering and automating high-value customer processes by leveraging the Internet and Internet-enabled network effects (e.g., crowdsourcing, social media, support forums).

These benefits are particularly salient in hard times, but also when the nature of communications is changing along the lines of the SaaS foundation. For a more detailed look at why SaaS is making great inroads in SaaS ERP, retail SaaS, and SaaS HCM ERP, retail, and HCM applications, go to the “SaaS and Cloud” tab here for some relevant white papers and demos.

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